MBA 202

Organization
Theory 1 Sem 2021-2022
st

Prof. Amerah B. Guro, DBM

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Introduction to Organization and

Organization Theory
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 What is an Organization?
✓ It is a group of people working together to achieve the specified goal.

✓ An organization represents a group of people who work together for

the achievement of common goal.

✓ An organization come into existence when there are a number of

persons in communication and relationship to each other and are
willing to contribute towards a common endeavor.
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 Organization- is made up of two or
more people working together

01
cooperatively within identifiable
boundaries to accomplish a common
goal.
Three important aspects of organization emerge from
this definition:
❖ Organizations are made up of people.
❖ When people work together , various things become
necessary
❖ Organizations have identifiable boundaries
❖ Organizations are purposeful, goal seeking work
arrangements.
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 Concept of Organization
➢ What?- What do we mean by an organization?

➢ Why? –Why is study of organization needed?

➢ When?- When an organization able to serve its purpose?

➢ How?- How are organizations formed?

➢ Where?- Where to find people who can manage organizations well

➢ Who? – Who are the people having the ability to create excellent
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organization
 Basic Features of Organization

● Organizations are relatively permanent social entities though many changes takes
place in the organization.

● Organizations need highly specialized skills to attain goals.

● An organization always includes include persons.

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 HOW DOES ORGANIZATION CREATES VALUE?
Organization’s inputs Organization’s Conversion
Process
Organization obtains inputs from
its environment Organization transform inputs and
adds value to them
Raw materials
Machinery
Money and capital
Computers
Human Resources
Human skills and abilities
Information and knowledge

Customers of Service
organization

Organization’s environment Organization’s Outputs

Sales of outputs allow Organization release outputs to
organization to obtain new its environments
supplies of inputs
Finished goods
Customers
Services
Shareholders
Dividends
Distributors
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Salaries
Government
Competitors Value for stakeholders
 ❖Modern Organizational Challenges
1. Managing organizations in a global environment .

2. Designing and structuring organizations.

3. Improving quality , empowering organization members and enhancing competitiveness.

4. Reducing complexity, increasing speed, and reacting to environmental changes.

5. Providing ethical and moral management of the organizations.

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 Why do Organization exist?

▪ To increase ● To use large – ● To manage ▪ To economize ● To exert power

specialization scale the on transaction and control
and the technology organizational cost
division of environment
labor
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 What is a Theory?

- It is a body of knowledge -It is an explanation of some

used to describe and phenomenon and it consists
predict. It is an integrated of principles that describe
set of statements that relationships observed in
summarize and explain
some situations.
research findings.
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.
 Organizational Theory
● It involves a set concepts that are related to each other
and explain how individuals behave in social units we
call organizations.
● Is the discipline that studies the structure and the
design of organization. It describes how the
organizations are actually structured and offer
suggestions on how they can be structured to improve
their effectiveness.
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 What is Organization
theory?
● STUDIES everything that is
associated with organization.
● AIMS to understand
organizations and to improve
them.
● EXAMINES
Organizational Design
Motivation
Organizational Culture
Managerial styles
Group Behavior
Leadership
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Communication
 Purpose of
Organizational
Theory
- to explain the component
parts of an organization and
their relationships so that
some prediction can be
made about how they are
likely to behave
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 Evolution of Organization
Theories CLASSICAL ORGANIZATION
THEORY

NEO-CLASSICAL ORGANIZATION
THEORY

MODERN ORGANIZATION
THEORY
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 CLASSICAL NEO- MODERN
THEORY CLASSICAL THEORY
• Scientific THEORY • Systems
management • Hawthorne Approach
• Administrative • Experiment • Contingency
management Approach
• Bureaucratic
Model
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 Classical Organisation Theory:
The classical writers viewed organization as a machine and human beings as
components of that machine. They were of the view that efficiency of the
organization can be increased by making human beings efficient. Their
emphasis was on specialization and co-ordination of activities. Most of the
writers gave emphasis on efficiency at the top level and few at lower levels of
organization. That is why this theory has given streams; scientific
management and administrative management. The scientific management
group was mainly concerned with the tasks to be performed at operative
levels.
Henry Fayol studied for the first time the principles and functions of
management. Some authors like Gullick, Oliver Sheldon, Urwick viewed the
problem where identification of activities is necessary for achieving
organization goals. Grouping or departmentation was also considered essential
for making the functions effective. Since this theory revolves around
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structure it is also called ‘structural theory of organization.”

 Appraisal of Classical Theory:
1. Classical thinkers concentrated only on line and staff structures.
They did not try to find out the reasons if a particular structure
is more effective than others.

2. This theory did not lay emphasis on decision-making processes.

3. Human behaviour was ignored in this theory.
Classical thinkers did not realize the complexity of human nature.
They take human beings as inert instrument of organisation performing
the assigned task.
4. The assumption that organisation in a closed system is unrealistic.
Organisation is greatly influenced by environment and vice-versa.
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 Neo-Classical Organization Theory:

The classical theory of organization focused main

attention on physiological and mechanical variables of
organizational functioning. The testing of these variables did
not show positive results. The Hawthorne Studies conducted
by George Elton Mayo and associates discovered that real
cause of human behavior was somewhat more than mere
physiological variables. These studies focused attention on
human beings in the organization .
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 :

Improvements over Classical Theory:

Neo-classical theory offers modifications and improvements

over classical theory in some aspects such as:

Flat structure,
Decentralization,
Informal organizations.
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 ● Appraisal of Neo-classical
Organisation Theory:
● This theory tries to overcome the
shortcomings of classical
organisation theory. It introduced
the concept of informal organisation
and human behaviour approach in
the study of organisational
functioning. However, it is also not
free from various shortcomings. Scott
observes that, “like classical theory,
neo-classical theory suffers from
incompetency, a short-sighted
perspective and lack of integration
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among many facts of human

behaviour studied by it.”
 Modern Organization Theory:

Modern organization theory is of recent origin, having developed in early

1960’s. This theory has tried to overcome the drawbacks of earlier theories. In the
words of W.G. Scott, ‘The distinctive qualities of modern organization theory are
its conceptual analytical base, its reliance on empirical research data and, above
all, its integrating nature. These qualities are framed in a philosophy which accepts
the premise that the only meaningful way to study organization is to study it as a
system.” This theory may be understood in two approaches: systems approach and
contingency approach.
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Thank you!
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